Asustek Beats Amazon on Tablets

Asustek Computer Inc.'s ASUS Taichi dual-screen ultrabook computer at the company's launch of new products in Tokyo, Japan on Nov. 14, 2012 Photograph by Kiyoshi Ota/Bloomberg

In the world of tablet computers, there’s Apple and Samsung, and then everybody else. New market-share figures from IDC released May 1 confirm that the Big Two hold commanding leads: Apple is No. 1 thanks to the popularity of the iPad, which had a 39.6 percent market share in the first quarter of the year. And no surprise, Samsung Electronics is second, with its Galaxy tablets commanding 17.9 percent of the market. From there, though, things get interesting.

No. 3 isn’t, even though the e-commerce giant enjoyed year-over-year growth of 157 percent for its Kindle Fire devices. The third-place finisher is Asustek Computer, the Taiwan company that first broke from the pack of anonymous outsourcing manufacturers in the late 2000s, when it was a leader in the short-lived era of netbooks. Remember those miniature laptops that once seemed like the future of computing? Asustek was the first to capitalize on them, and for a while the company rode their popularity into the top ranks of global computer makers.

The iPad and its imitators quickly killed off the netbook. While many of Asustek’s bigger PC rivals—Hewlett-Packard, Dell, Acer—have struggled trying to find a place for themselves in the new world of tablets, scrappy little Asustek has managed pretty well. It now has 5.5 percent of the tablet market, according to IDC. That’s puny compared with the Big Two, of course, but much bigger than anybody else. And Asustek is No. 1 in sales growth, with first-quarter gains 350 percent above the same period in 2012.

The bad news for Asustek: that success isn’t necessarily on the strength of its brand. The Taiwanese company is riding the coattails of Google, which has teamed up with Asustek to market its Nexus 7. Thanks to that device, Asustek “continued to see decent tablet shipment demand,” IDC said in a statement on May 1. According to estimates by Sanford C. Bernstein analysts, sales of the Nexus 7 topped 2 million units in the last quarter of 2012, more than Asustek’s own-brand tablets.

Asustek’s success with the Nexus 7 is therefore something of a mixed blessing. Sure, it’s nice to be No. 3, behind only Apple and Samsung. But Asustek, like such other Taiwanese electronics companies as Acer and HTC, has spent many years trying to move beyond its roots as a low-margin outsourcing manufacturer for more well-known companies. As part of that strategy, Asustek spun off its contract manufacturing business, now called Pegatron and listed separately on the Taiwan stock exchange. Without Pegatron, the thinking went, Asustek management could focus more on coming out with new products sold under the company’s own brand.

There’s some good news for Asustek on that front. Its products are beginning to develop a “strong cult following,” and users display “higher passion toward the brand,” Sanford C. Bernstein analysts Alberto Moel and Lu Bian wrote in a report published in March. Asustek has also managed the transition to the post-PC era better than most of its rivals, “being one of the first companies to come out with Android tablets that actually work,” Moel and Lu write. Asustek “is a couple of generations ahead” of other PC companies in tablets.

As Asustek tries to make a name for itself, co-branding with Google for the Nexus 7 is a detour, albeit a profitable one. To be sure, Asustek isn’t the only brand-focused Taiwan company to team with a powerful American partner. Troubled smartphone maker HTC has joined forces with Facebook to sell the social networking company’s new Home handset. But there’s a risk working with big-name U.S. partners. What happens to Asustek if Google decides to find another partner? IDC noted in its May 1 report that Google is likely to unveil a new generation of its Nexus tablet soon. As a result, Asustek “will need to find a way to sustain its momentum,” according to IDC. Bernstein analysts Moel and Lu are optimistic, arguing that Asustek’s tablets “are competitive enough to stand on their own.” They predict market share of about 7 percent by next year.

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